Do You Need Disability Insurance?
By Kristi Vaughan
You have life insurance to financially protect your family should you die. You have homeowners or renter’s insurance to financially protect the loss of your home or personal belongings should disaster strike. But what happens if injury or serious illness prevents you from working? Do you have disability insurance to replace your lost income?
What is disability insurance?
Disability insurance is income protection for the short term or the long term should you be unable to work because of illness or injury. Employers sometimes include disability insurance in a benefit package or you can purchase it individually.
There are two types of disability insurance:
- Short-term policies have a waiting period of 0-14 days before they start providing benefits and last for no more than two years.
- Long-term policies usually do not begin for several weeks or months but, depending on the coverage can last the rest of your life.
Disability insurance vs. workers’ compensation
While disability insurance and worker’s compensation insurance both cover income lost because of illness or injury, workers’ compensation benefits cover only those illnesses and injuries that are a result of your job.
Other disability programs
In addition to disability insurance payments, you may be eligible to receive payments under Social Security. Social Security disability benefits can begin if you have been disabled for at last five months; are expected to be disabled for at least 12 months and are unable to be gainfully employed at any job.
Other sources of disability income could include: Veteran’s Administration, civil service disability pay, black lung programs for miners, automobile insurance, and state vocational rehabilitation programs.
How much insurance?
To determine how much insurance you will need, add up all benefits you might receive from other sources. Compare this to your income needs and the amount of disability insurance, if any, that is provided as part of your employers benefit package. If there is a gap, you should consider purchasing additional insurance through your employer or privately.
What to look for in disability insurance
In addition to duration of coverage, there are several areas to consider when purchasing disability insurance:
- How is disability defined?
- How disabled must you be to collect benefits?
- Are there residual benefits if you are not totally disabled but your income is reduced?
- When do payments begin?
- Is there a cost-of-living adjustment?
- What limits exist on total benefits received from all sources?